BELT AND ROAD INITIATIVE - A Strategic Pathway - Commissioned by Sponsors: Asia New Zealand ...
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Disclaimer: This Report has been prepared by PwC for the NZ China Council and represents the views of the author. However, neither PwC, the NZ China Council, nor any contributor or sponsor represents or warrants the correctness or accuracy of the contents of the Report nor takes any responsibility to anyone that relies on the Report or any aspect of it. Anyone wishing to rely on the Report should make their own inquires and take their own advice. | Belt and Road Initiative - A Strategic Pathway | 2
FOREWORD by the Chair of the NZ China Council, Sir Don McKinnon I am pleased to provide an introduction to this report on opportunities for New Zealand under China’s Belt and Road Initiative (BRI) prepared by PwC. The NZ China Council was established in 2012 as an independent organisation bringing together key stakeholders from government, business and the wider community and dedicated to building strength and resilience into New Zealand’s relationship with China. BRI is an extraordinarily ambitious undertaking and one which continues to evolve. In commissioning this report, the Council wished to achieve a number of objectives. First and foremost, we wanted to consider BRI from a New Zealand perspective and to inform stakeholders of opportunities and any potential risks. Second, we wanted to contribute in a practical way to the development of ideas and projects which could be advanced under the Memorandum of Arrangement (MoA), which the two governments concluded during the visit of Chinese Premier Li Keqiang in March 2016: the MoA is an aspirational, non-binding undertaking, which nevertheless signals New Zealand and China’s willingness to explore options for closer collaboration under a BRI framework. And, lastly, we wanted to provide some further analytical underpinning for the work that needs to continue to be done to grow New Zealand’s relationship with China at a time when many others are competing for the attention of an emerging super-power. The report tries to take a fresh, innovative and practical approach to the prospects for co-operation under BRI. We asked PwC to focus in particular on opportunities to create greater connectivity between New Zealand, China and the 68 other BRI participants. While BRI is perhaps best known for the large-scale infrastructure projects being undertaken in developing countries along the Belt and Road, we believe New Zealand’s approach needs to reflect our comparative advantage, especially given the limited size of New Zealand’s domestic infrastructure programme from a global perspective. This is not to say that there are no opportunities in infrastructure – including potentially in supplying New Zealand services solutions in infrastructure projects in third countries – but the focus of this report is firmly on connectivity. The Council is very grateful to the sponsors of this project, whose logos appear on the cover. They have engaged in this project because they see the analysis and, even more so, the discussions that will follow to be important for New Zealand. Representatives of these organisations participated actively with PwC in a “diverge-converge” process, described in the report, which evaluated a large number of possible activities against a set of criteria which highlighted above all relevance to both countries, ease of implementation as well as reputational and other risks. The outcome was the eight activities grouped under four categories in the areas of Trade Facilitation, New Zealand as a Conduit to South America, the Creative sector and Innovation. These areas for future co-operation are not intended to be exhaustive, but illustrative of what could be developed. We fully expect other potential areas to be uncovered as part of ongoing discussion that we hope will be generated around this report. The Council is also grateful to the Ministry of Foreign Affairs and Trade (MFAT) which provided both a significant grant towards the completion of the report and useful background material and insights. The final report is issued on the authority of the Council alone and should not be taken to represent the policy of the New Zealand Government. As we continue to develop engagement with BRI it is important that we do so aware of potential risks and challenges, which have been highlighted in a number of quarters and which are considered in the report, and in the light of New Zealand’s key interests and deeply-held values. The next steps for this report envisage the presentation of further relevant materials on the Council’s website as well as a programme of outreach and consultation around New Zealand. We welcome feedback on the report and encourage its wide dissemination and use as a starting point for further reflection and discussion. We thank the report’s authors at PwC for their work and look forward to the continuing journey along the Belt and Road. Sir Don McKinnon Auckland, 1 March 2018 | Belt and Road Initiative - A Strategic Pathway |
EXECUTIVE SUMMARY The Belt and Road Initiative (BRI) was In March 2017, New Zealand and China The changing nature of BRI means it is announced in 20131 by Chinese President signed a Memorandum of Arrangement challenging to clearly define BRI and the Xi Jinping who subsequently described it (MoA) under which the countries opportunities it presents. However what as the “project of the century”.2 BRI undertook to explore ways of working is clear is that BRI is at the very core of promotes closer ties between countries together in specified areas to expand China’s country to country relationships. through development-led trade growth. trade and investment and to develop a Proactive engagement with BRI This requires a massive infrastructure pathway for cooperation and exchanges demonstrates an understanding of the construction programme complemented to support the BRI. importance of BRI to China. The breadth by bilateral commitments covering trade and inclusiveness of BRI means that and investment. BRI is also regarded as a The scale of the BRI is hugely ambitious. countries can decide for themselves the The estimated cost of BRI projects is extent to which they engage with BRI. significant geostrategic initiative, which reflects China’s changing status as an expected to be approximately US $2.5trillion over the next decade.5 Having signed the MoA New Zealand has economic and military power. signalled willingness to engage with BRI. At the 19th National Congress of the BRI related infrastructure development is We must now determine the depth and changing the flow of goods around the breadth of our engagement. Communist Party of China held in Beijing globe. These changes have the potential in October 2017 the BRI was embedded to impact on the flow of New Zealand’s Engaging with BRI gives us an opportunity within the Chinese Constitution.3 This trade into China. to protect our hard won and valuable demonstrates the importance and relationship with China, a relationship permanence of BRI within the Chinese 69 countries and organisations have that may otherwise be at risk of system. signed up to be a part of BRI.6 The vast “preference erosion” as China is likely to majority of those countries have focused focus its resource and attention on The growth in New Zealand’s trade and investment with China has been critical to their attention on infrastructure. While countries that are fully engaged with the infrastructure may eventually be a feature Belt and Road. We also need to be alert to our relative economic prosperity since the of BRI in New Zealand, our location and the implications of a fundamentally Global Financial Crisis. China is New advanced economy status creates an bilateral initiative, with China at the Zealand’s largest trading partner in goods and second largest trading partner when opportunity to examine alternative centre, for the region’s trade and trade in services are included. The New approaches that may offer more economic architecture. immediate and scalable potential and play Zealand - China Free Trade Agreement to New Zealand’s comparative The New Zealand China Council (NZCC) (FTA) signed in 2008 was China’s first FTA advantages. has commissioned this report to set out a with a developed country.4 China is one of range of options to expand New Zealand’s the world’s fastest-growing economies BRI is dynamic and continues to evolve as “connectivity” with China and other and its vast population and growing the priorities and interests of China and countries along the Belt and Road. The middle class present huge potential for other Belt and Road countries change. It is options are not intended to be exhaustive New Zealand. helpful to think of the Belt and Road but an illustrative indication of what could Initiative as an evolving concept as be developed between New Zealand and opposed to a tightly defined and rigid China working together under BRI. project. Engaging in such an ambitious and wide- BRI has grown from its original NZ – CHINA TWO infrastructure foundation to now ranging initiative is not without risk. Potential risks are identified in the report. WAY TRADE GROWTH encompass a much broader vision, including sectors such as health, These need to be closely evaluated and taken into account as New Zealand education and digital. develops its engagement with BRI. 18% NZCC’s intention is to enable better 16% $23.2 billion understanding of BRI and catalyse an $8.2 billion informed discussion of the available options open to New Zealand. 10% China This will contribute to the development of 2007 6% +182% the working plan as foreshadowed by the MoA and enable informed decisions 2017 among stakeholders around how New Zealand engages with China’s Belt and Road Initiative. Chinese Exports as a % of NZ Exports 2007 2017 Source: Stats NZ data for the year ended March 17 Chinese Imports as a % of NZ Imports PwC | Belt and Road Initiative - A Strategic Pathway | 3
EXECUTIVE SUMMARY President Xi Jinping has said “The (Belt and Road) initiative will be open and inclusive, not exclusive ”7.The areas to which BRI could apply are therefore broad and open to further expansion. The National Development and Reform Commission (NDRC) has set out five coordination priorities to guide engagement with BRI. THE FIVE BRI COORDINATION PRIORITIES8 POLICY COORDINATION Promote intergovernmental cooperation 01 expanding shared interests, enhancing mutual political trust and reaching new 04 PEOPLE-TO-PEOPLE BONDS Promote deepening bilateral and cooperation consensus. multilateral cooperation through various exchanges along the Belt and FACILITIES CONNECTIVITY Road. These include cultural and Improve connectivity through construction of transport, energy and communications 02 academic exchanges to increase links between Belt and Road countries. infrastructure and technical systems along the Belt and Road. This includes promotion of green and low-carbon infrastructure. FINANCIAL INTEGRATION UNIMPEDED TRADE Enhance co-ordination of monetary Improve investment and trade facilitation in all related countries, removing barriers and 03 05 policy, deepen multilateral and bilateral financial co-operation and setting up free trade agreements to create a expand the scope of local currency sound business environment. settlement and currency exchange In addition, cooperation should be along the BRI. advanced in emerging industries and mutual investment areas expanded. Notice that only one (priority #2) of the five priorities relates directly to infrastructure. GEOGRAPHICAL COVERAGE • The BRI countries have a combined population of 4.4 billion. To date, 69 countries (including New Zealand) and organisations have signed up to be a part of the BRI. Organisations such as the United Nations, the World Bank and the International Monetary Fund are taking an active role in BRI.6,9 • The core infrastructure elements of BRI are focused on six major economic corridors and the 21st Century Maritime Silk Road. • While New Zealand has the chance to be on the 21st Century Maritime Silk Road, our geographical position means we are irrelevant to the vast majority of BRI infrastructure. • The BRI Forum held in Beijing in May 2017 provided a “Britain is a natural partner for Beijing and “Chile is ready to be a bridge platform for countries to use the evolving and I welcome the BRI as a opportunity to country between Asia and Latin flexible nature of BRI to signal a willingness to strengthen these ties.”10 America.”11 participate even when they had not always been “on Philip Hammond Michelle Bachelet the map”. British Chancellor President of Chile PwC | Belt and Road Initiative - A Strategic Pathway | 4
EXECUTIVE SUMMARY PROCESS OVERVIEW New Zealand’s geographical position does not preclude participation in the BRI: rather it places a premium on identifying innovative ways to engage, building on the positive relationship we have developed with China. Fulfilling the NZCC’s brief for this report required an open minded and inclusive approach to identifying engagement opportunities focusing on leveraging the BRI to develop enhanced connectivity with China and other Belt and Road countries rather than infrastructure. It was important that this report focused on a manageable number of ideas that can be further developed into executable opportunities. A range of possible initiatives were identified using a diverge/converge approach, based around six assessment criteria. The stakeholder group identified eight opportunities grouped into four categories that are summarised below. DIVERGE CRITERIA CONVERGE 1. Aligned to NZ‘s comparative 4. Reputational advantage risk 2. Potential for traction under 5. Benefits vs. China’s BRI Costs 3. Value to NZ 6. Ease of Inc. implementation THE OUTCOME IS EIGHT OPPORTUNITIES GROUPED INTO FOUR CATEGORIES 1. TRADE FACILITATION Collaborating to help optimise trade 2. NEW ZEALAND AS A CONDUIT TO SOUTH AMERICA facilitation under the BRI. Enabling connectivity between South America and China to facilitate the movement of people and goods. 1.1 Biosecurity – 1.2 Customs 1.3 Hubbing - Build on clearance – Establishing 3. CREATIVE Utilising New Zealand’s world collaboration Work with BRI supply chain SECTOR leading creative capabilities to agreements countries to hubs in China or develop creative properties that already in place enhance customs elsewhere can enhance people-to-people to enhance clearance utilizing Belt and links and cultural engagement. biosecurity protocols. Road efforts. infrastructure for supply chain benefits. 3.1 Creative properties 3.2 BRI Interactive 3.3 Epcot type – Collaboration on the simulations – location based generation of creative Collaboration to experience – 4. INNOVATION properties focused on produce a game New Zealand could Utilising our innovative capability through increasing the simulation which is work to create a research collaboration and commercialisation understanding of both engaging and center to showcase links with China and across BRI. peoples and cultures informative. the cultural aspects along the BRI. of each BRI country. Following this report the NZCC has identified next steps including the development of web-based materials to assist understanding of BRI and further consultation with stakeholders. Thank you to all those associated with this report who have invested considerable time and resources to support this initial analysis and the conversation that will inevitably follow. PwC | Belt and Road Initiative - A Strategic Pathway | 5
TABLE OF CONTENTS EXECUTIVE SUMMARY 3 SECTION ONE - BRI background BRI Background 8 Global Map 9 BRI Economic Corridors 10 Risk Considerations 12 Global BRI Connectivity Projects 13 Connectivity Case Study: Singapore 15 NZ – China Memorandum of Arrangement on Cooperation on the BRI 16 SECTION TWO – Developing a strategic pathway Options Considered & Process 18 New Zealand Engagement Levels 19 1.1 Trade Facilitation – Biosecurity 20 1.2 Trade Facilitation – Customs Clearance 22 1.3 Trade Facilitation – Hubbing 24 2. New Zealand as a conduit to South America 26 3.1 Creative Sector – Creative Properties 28 3.2 Creative Sector – BRI Interactive Simulations 30 3.3 Creative Sector – “Epcot type” Location Based Experience 32 4. Innovation – Research Collaboration and Commercialisation 34 Conclusion and Next Steps 36 APPENDICES Appendix A – End Notes 37 Appendix B – Useful Resources 39 PwC l |Belt and Road Initiative - A Strategic Pathway | 6
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA BRI BACKGROUND • The Belt and Road Initiative (BRI) • The NDRC is the lead government • Like the historical Silk Road, the arose out of China’s “Go Out” policy body tasked with overseeing BRI. scope of the Belt and Road extends focused on promoting outbound The International Cooperation beyond infrastructure and Chinese Investment in overseas Centre (ICC) leads the international encompasses cultural exchange and assets. cooperation under the BRI. people-to-people connections exemplified by a wide range of • BRI was described by President Xi • China’s economic interests activities from education exchanges Jinping as the “project of the originally focused on increasing to health care programmes. century” in 2014.2 demand for industrial construction but has expanded to become an • China has stated that all countries in • BRI is a regeneration of the ‘old Silk ambitious globalisation programme the world are invited to be a part of Road’, a network of trading routes the BRI. Many countries, including aimed at boosting the flow of trade, that connected China across Eurasia Britain10 and Chile11 have publicly capital and services. from the second century BC to the stated their intention to be a part of end of the fourteenth century AD. • Historically trade has developed in BRI. Silk and many other goods were response to rules based structures exchanged across these land and such as multilateral trade • The NZCC believes that New maritime routes. In addition to arguments. The BRI provides a Zealand’s strong and economically tangible transport, the movement potential new stimulus whereby viable relationship with China is at of people aided the transmission of trade could evoke a response to unconscious risk of “preference culture, language, knowledge and infrastructure development that erosion” as China focuses on BRI beliefs along the routes. maps out alternative trade routes. countries. Preference erosion describes a situation whereby the • Originally conceived as an • The BRI also holds strong favourable position with China that infrastructure development international political currency as New Zealand has historically programme along ancient trade shown by the c.1,200 people from benefited from would be eroded as routes linking China and Eurasia, the over 100 countries who attended a result of China focusing its concept has broadened out the BRI Forum hosted by President resources and attention on other considerably to include a vision of Xi Jinping in Beijing in May 2017. countries more fully engaged with enhanced connectivity along both Attendees included 28 heads of the Belt and Road. overland routes (‘the belt’) and state and government as well as maritime lanes (‘the road’) linking other leading figures from • Having signed the Memorandum of China, Africa, South East Asia, the organisations such as the UN, the Arrangement A and as a founding Pacific and on to Latin America. World Bank and the IMF.12 member of the Asian Infrastructure Investment Bank B, New Zealand is well positioned to positively engage with the BRI. This report is intended to enable an informed discussion of the alternatives available to New Zealand. The BRI covers 63% Total trade between China and 69countries other Belt and Road countries in 2014 - 2016 is approximately:9 of the world’s population and US$3trillion and organisations have 29% signed up to the BRI.6 The BRI is predominantly bilateral delivered through a hub and spoke model. of Global GDP.5 A: Refer to page 16 for a full description. B: The AIIB is a multilateral finance institution founded by China to bring countries together to invest in sustainable infrastructure and other productive sectors. 13 PwC | Belt and Road Initiative - A Strategic Pathway | 8
SECTION ONE SECTION TWO Background Economic Global Singapore MoA Process NZ Trade NZ as Film & Innovation Conclusion & Corridors Connectivity Engagement Facilitation a conduit Entertainment Next Steps Projects Levels to SA 01 The new Eurasia Land Bridge Economic Corridor GLOBAL MAP 02 China-Mongolia-Russia Economic Corridor 03 China-Central Asia-West Asia Economic Corridor The Belt & Road Initiative is being described through the lens of six 04 China-Pakistan Economic Corridor main economic corridors and the 21st Century Maritime Silk Road. 05 Bangladesh-China-India-Myanmar Economic Corridor 06 China-Indochina Peninsula Economic Corridor 07 21st Century Maritime Silk Road Moscow Ulan-Ude Hamburg Some of the economic corridors are relevant to New Minsk Duisberg Lodz Chita Zealand. For example the New Eurasia Land Bridge could Rotterdam Melnik provide an alternative supply route for New Zealand Pradubice Kazakhstan Alashankou Ulaanbaatar produce to European markets. It could also bring greater Venice Khorgas competition from European suppliers by improving their Alamaty access to the Chinese market. Urumqi Istanbul Tashkent Bishek Dalian Athens Ashgabat Kashgar Beijing Tehran Dushanbe Lianyungang Lahore Lanzhou Kunming Chaozhou Cairo Nanning Gwadar Karachi Fuzhou Dhaka Guangzhou Beihai India Zhanjiang Hanoi Kolkata Haikou Haipong Mandalay Djibouti Ho Chi Minh Colombo Kuala Lumpur Nairobi NEW ZEALAND’S TOP TRADING PARTNERS FOR THE YEAR ENDED MARCH 2017 Jakarta 1. Australia: $24.2b Buenos Aires Santiago 2. China: $23.2b NEW ZEALAND HAS THE FOLLOWING TRADE FACILIATION ARRANGEMENTS IN PLACE 1. China FTA 3. European Union: $20.0b 2. Australia CER 3. AANZFTA (ASEAN Australia NZ FTA) 4. Malaysia FTA 4. USA: $16.2b 5. Singapore CEP 6. Thailand CEP 7. Hong Kong, China CEP 5. Japan: $7.6b New Zealand 8. P4 (Brunei Darussalam, Chile, Singapore and New Zealand) 9. Korea FTA 10. Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Cooperation (ANZTEC) Source: South China Morning Post, Institute for the Analysis of Global Security, MFAT PwC l Belt and Road Initiative - A Strategic Pathway l 9
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA BRI ECONOMIC CORRIDORS China has identified six key economic corridors and the 21st Century Maritime Silk road which are shown on the previous map and summarised below 01 02 03 THE NEW EURASIAN THE CHINA-MONGOLIA- CHINA – CENTRAL AND LAND BRIDGE RUSSIA ECONOMIC WEST ASIA ECONOMIC (NELB) CORRIDOR (CMREC) CORRIDOR (CCWAEC) The NELB links the Pacific to the CMREC is built on the foundation of the CCWAEC links China and the Arabian Atlantic, from China’s coastal cities of “development of trilateral cooperation Peninsula. This mostly follows the Lianyungang and Rizhao, to the between China, Russia and Mongolia” trajectory of the ancient Silk Road. It Netherland’s Rotterdam and Belgium's signed in June 2016. This connects the starts in Xinjiang in Western China and Antwerp. As at August 2017, 20 Chinese Chinese BRI, the Russian Trans-Eurasian joins five Central Asia countries cities were connected to 15 European Belt and the Mongolian Steppe Route (Kazakhstan, Kyrgystan, Tajikistan, cities by rail.14,15 More than 5,000 projects. One of the most significant Uzbekistan and Turkmenistan) in the freight train journeys have been made projects is Amur Bridge which is due to journey to the Mediterranean coast and since the start of the direct rail freight be completed in 2019, linking Arabian peninsula through Western services in 2011.16 northernmost China with south-eastern Asia across Iran, Iraq and Turkey.17 Russia by a high speed railway.17 04 05 06 CHINA – PAKISTAN BANGLADESH–CHINA– CHINA – INDOCHINA ECONOMIC CORRIDOR INDIA–MYANMAR PENINSULA ECONOMIC (CPEC) ECONOMIC CORRIDOR CORRIDOR (CICPEC) (BCIMEC) CPEC’s 3,000-kilometre-long corridor BCIMEC is a hybrid land sea route CICPEC aims to connect eight major starts from China's Kashgar and ends at connecting Kunming in Southern China, cities – Singapore, Kuala Lumpur, Pakistan's Gwadar. It connects the Silk through Myanmar and Bangladesh to Bangkok, Phnom Penh, Ho Chi Minh Road Economic Belt in the north and Kolkata in India. This corridor City, Vientiane, Hanoi and the Chinese the 21st Century Maritime Silk Road in encompasses expressway, high-speed city of Nanning. Additional connectivity the south. It is a trade network of rail link, air and water way connections nodes would be extended to the major highways, railways, pipelines and as well as power transmission and oil economic hubs of Guangzhou and Hong optical cables, and is a flagship project pipelines. The Kolkata and Kunming Kong, linking ten cities with a under the Belt and Road Initiative. (K2K) highway and sea routes via the cumulative population of over 50 Notable projects are the Karakoram Kaladan multi-modal transit routes are million in the region.18 Highway and the Gwadar deep water almost completed.17 port.17 PwC | Belt and Road Initiative - A Strategic Pathway | 10
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA BRI ECONOMIC CORRIDORS (continued) 07 THE 21ST Century BEYOND THE ECONOMIC CORRIDORS MARITIME SILK ROAD The BRI is inclusive not exclusive, as evidenced by some initiatives being initiated This is the ‘road’ of the BRI connecting outside the key Belt and Road economic corridors. regional waterways. The China-Indian Ocean-Africa-Mediterranean Sea Blue Economic passage will link the CICPEC LATIN AMERICA AFRICA running westward from South China Sea • In November 2016, President Xi • China’s involvement with Africa has to the Indian Ocean. This will connect Jinping visited Latin America and been expanding for some time. the CPEC and the BCIMEC. A second encouraged these countries to join blue economic passage connects China • Other than mining for natural the BRI. – Oceania – South Pacific and a third resources, China’s main investment blue economic passage is envisioned • China has free trade agreements have been in infrastructure. leading up to Europe through the Arctic with Peru and Chile.17 • One project of note is the US$11bn Ocean.19 More detail is yet to be • A feasibility study is underway construction of a 1,400km coastal released but the second blue passage considering an east-west railway railway in Nigeria. This was led by through the South Pacific could place across South America from Brazil to the China Civil Engineering New Zealand on the 21st century Peru.20 Construction Corporation and the Maritime Silk road. Federal Republic of Nigeria.17 • This would reduce the cost of shipping raw materials but the route is contentious due to the potential ecological and environmental impact. The BRI has the potential to realise many opportunities for countries along the BRI Enhanced multilateral Increased market access cooperation 2. For countries along the economic corridors, infrastructure linkage As more countries engage around a BRI platform this could open up 1. supports the potential for development led trade i.e. improved opportunities to enhance multilateral structures. 3. infrastructure will be followed by trade growth. Travel time reduction Increased connection provides access The development of new 6. to some poorly connected economies connections between countries provides, in some cases, a 4. Developing regions which currently don’t have strong connections to significant reduction in travel time neighbouring countries will benefit and costs. from the expanded network BRI may Security of supply 5. provide. This could provide transformational opportunities for certain geographical regions. Increased connectivity through the creation of economic Cultural exchange corridors provides increased and alternative access to primary Increased connectivity also applies in a goods and labour. cultural sense, building stronger connections across the BRI. PwC | Belt and Road Initiative - A Strategic Pathway | 11
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA RISK CONSIDERATIONS There are a number of significant challenges inherent in the Belt and Road that need to be closely evaluated to ensure that New Zealand’s actions are in line with our best interests and values. Long term nature increases risk Political instability Infrastructure alignment Many of the large scale projects will The BRI touches on a number of Standardising the ‘hard’ take time to build and require a long countries with a history of infrastructure along the Belt and life to enable economic returns. political instability. Road is challenging, particularly Some projects extend through areas where existing infrastructure that are prone to geopolitical, already exists. financial and operational risks. 2. 1. Bilateral imbalance 10. 3. Security infrastructure Elements of BRI infrastructure plans The BRI is primarily bilateral, have been viewed as having with China as the dominant partner at the centre. Given the 9. potential military uses that could impact on the security of scale advantage enjoyed by neighbouring countries or regions. China there is a risk of imbalance in country to country 4. arrangements. 8. 5. Financial burden 7. Infrastructure maintenance The ambitious scale of many BRI 6. Much of the infrastructure is being projects risks creating a large built in harsh or remote financial burden on developing BRI environments which may require a countries who could find it significant commitment to challenging to meet loan obligations maintaining each “link” in the chain. and become financially exposed to This is required to ensure an the success of single projects. effective and efficient long term network. Governance risks Risk to traditional relationships Perceived ‘competition’ with other established trade routes Some BRI countries do not have The BRI has been described as expertise or a strong track encouraging “contested In addition to political and security record in the governance multilateralism”21 with several challenges, the BRI may diminish the required to ensure projects are countries such as Japan and Australia importance of existing trade routes. viable and fiscally secure. adopting a cautious approach to This could discourage affected parties participation. If New Zealand is seen from engaging positively with the BRI. to be too forward leaning on BRI then this could impact on some of New Zealand’s traditional relationships. PwC | Belt and Road Initiative - A Strategic Pathway | 12
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA GLOBAL BRI CONNECTIVITY PROJECTS China is investing in non-infrastructure projects to achieve the BRI cooperation priorities as shown by the selected examples below. BRI carries such strong political currency in China that projects are increasingly being positioned under BRI to gain traction with related parties. TECHNOLOGY DIGITAL TRANSFER SILK ROAD HEALTHCARE CENTRES • The international technology • In November 2017, Estonia and • In February 2017, the Chinese Red transfer centre of Inner Mongolia China signed a Memorandum of Cross Foundation established the was set up in Manzhouli in June Understanding on Strengthening Belt and Road Fraternity Fund. The 2016, connecting Mongolia with the Development of Digital Silk first use of funds delivered Russia in areas of education, Road for Information Connectivity. treatment to 20 Afghanistan culture, science and agriculture. This focuses on promoting of e- children with heart disease.28 This centre supports relationships commerce ecosystem development • China and the World Health with agencies in Southeast Asia through a number of applications Organisation signed a resulting in 53 technology such as logistics and trade Memorandum of Understanding in promotion projects.22 information connectivity and May 2017 to jointly establish the cooperation in fields such as smart • In July 2017, China and Pakistan ‘Health Silk Road’. This includes cities.25 attended the inauguration human resource exchanges and ceremony of Pakistani sub-centre of • A business led association based in hospital alliances along the Belt and China-South Asia Technology Brussels called “ChinaEU” fosters Road.29 Transfer Centre and signed two cooperation, trade and investment agreements on cooperation for in digital products and services science and technology.23 between Europe and China.26 • The State Council of China intends • In September 2017, the Online Silk to build a basic national technology Road Convention of the China-Arab transfer system by 2020. This States Expo 2017 focused on includes enriching the technology international cooperation in the transfer pool and launching more digital economy and the international cooperation under the construction of a cyberspace silk BRI.24 road. This includes cross border e- commerce and smart city development.27 PwC | Belt and Road Initiative - A Strategic Pathway | 13
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA GLOBAL BRI CONNECTIVITY PROJECTS (continued) TOURISM EDUCATION CUSTOMS CLEARANCE • In September 2017, China set up the • The Oxford Law Faculty hosted the • Within China, the general World Tourism Alliance during the One Belt One Road Summit on 14 administration in Tianjin, Hothot United Nations World Tourism September 2017. This was attended Customs, Manzhouli Customs, Organisation General Assembly. by over 100 delegates from around Urumqi Customs signed a This attracted 89 members from 29 the world. This summit launched memorandum of cooperation In countries and regions, including Oxford’s “One Belt One Road September 2017 to strengthen New Zealand, the United States, Programme” on 15 September. This coordination on customs clearance. France, Germany, Japan, Australia, will be focused on researching Tianjin is the connecting point of the Malaysia and Brazil.30 common legal, socio-legal, CMREC as well as the NELB regulatory and framework issues corridors.36 • 2019 will be the China-New Zealand concerning the BRI Year of Tourism. The China National • China-Russia-Mongolia Customs implementation.32 Tourism Administration will work Symposium on 14 June 2017 stated with New Zealand officials to • China launched the University that countries have made progress establish a focus for the year that Alliance of the Silk Road in 2015, in customs clearance cooperation reflects the priorities and interests which connects 130 universities and and the 3M cooperation mechanism of both countries.31 is coordinated by China’s Xian (i.e. mutual exchange of Jiaotong University.33 information, mutual recognition of customs control and mutual • A new Silk Road Law School alliance assistance of enforcement).37 was established in December 2015 between 20 Chinese and foreign law • In November 2017, China Customs schools including Australia, Helsinki, has drafted an implementation Delhi, Russia, Brazil, South Korea.34 guideline of Mutual Recognition for Authorized Economic Operators • China has also set up a Sino-Russia (AEO) of the World Customs university alliance in September Organization (WCO). This has been 2017 with 40 Chinese universities approved.38 and 20 Russian universities.35 • As at 13 November 2017, China Customs has signed AEO mutual recognition agreements with 34 countries and regions.39 PwC | Belt and Road Initiative - A Strategic Pathway | 14
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA CONNECTIVITY CASE STUDY: SINGAPORE The PwC Report “Repaving the Ancient Silk Routes” showcases how Singapore is an example of a small country, which is using its competitive advantage in the context of the BRI.17 • Singapore is the largest foreign exchange centre in Asia • Singapore already manages ~60% of infrastructure project Pacific. finance transactions in Southeast Asia. SINGAPORE HAS POSITIONED ITSELF AS THE GATEWAY TO THE SOUTH EAST ASIA REGION VIA THE 21ST MARITIME SILK ROAD • Business friendly INFRASTRUCTURE FINANCING HUB • Established network of business communities Leverages its world class business environment which • Economically open supports facilitation of investments into SE Asia. • Low tax regimes • Absence of foreign exchange controls • Diversified talent pool • World class infrastructure • Strong and independent legal system INFRASTRUCTURE SUPPLY CHAIN DEPTH Singapore has a growing ecosystem of participants across the infrastructure supply chain. This provides collaboration opportunities with Chinese companies in the region. KNOWLEDGE AND EXPERTISE EXCHANGE Singapore has the skills in urban planning expertise to share and complement China’s expansion. BRI INVOLVEMENT TO DATE • Finance (>US$6bn of deals concluded in 2016). Singapore and China have launched a joint • Aviation (Changi Airport will work with Chinese project “Chongqing Connectivity Institute” authorities on the new Chongqing Jiang Bei to focus on bilateral collaboration in the Airport). following specified areas. • Transport and logistics (establishing a transport and logistics hub in Chongqing). • Information communications technology. PwC | Belt and Road Initiative - A Strategic Pathway | 15
SECTION ONE SECTION TWO Background Economic Global Case Study: NZ – China Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore BRI MoA Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA NEW ZEALAND-CHINA MEMORANDUM OF ARRANGEMENT ON COOPERATION ON THE BRI The Memorandum of Arrangement (MoA) on Strengthening Cooperation on the Belt and Road Initiative between the Government of New Zealand and the Government of the People’s Republic of China was signed on 27th March 2017 in Wellington by Chairman of the National Development and Reform Commission, H E He Lifeng, and Minister for Economic Development, Hon Simon Bridges.40 • The MoA is an enabling and non- • This strategic report is intended to • The BRI MoA links the New binding document which provides provide ideas that can be further Zealand-China FTA upgrade and both countries 18 months to create a explored and converted to the goal set in 2014 of growing more specific bilateral action plan. actionable initiatives. two-way trade to $30billion by 2020 to the BRI. AREAS OF COOPERATION “Through connectivity and mutual learning among the countries along “the Belt and Road”, and drawing on the comparative advantage and contributions of the 01 POLICY COOPERATION participants and their private sectors, the participants will promote through senior level dialogue on each other’s development the exchange and strategies, plans and policies on a regular basis in line with each integration of goods, country using their comparative advantage. technologies, capital and personnel, push forward coordinated economic, social, environmental and cultural development and 02 BILATERAL MUTUALLY BENEFICIAL COOPERATION through pushing forward economic and trade cooperation, upgrading common progress, and promote dialogue and fusion among civilizations.” our China-NZ FTA, expanding two-way investment flow, discussing approaches to advance cooperation mechanisms and actively New Zealand – China conducting mutually beneficial cooperation in the fields of Memorandum of infrastructure, manufacturing, agricultural technologies, information Arrangement technology, clean energy, regulatory harmonisation, public financial 2017 management and trade facilitation. 03 CULTURAL EXCHANGES in the fields of education, tourism, local government, youth and the screen sector. For example, using the Film and Television Programmes Co-Production Agreement to advance mutual learning and create a new situation in cultural exchanges. 04 MULTILATERAL COOPERATION through enhancement of international and regional mechanisms including the UN, APEC, EAS, AIIB and PIF to promote the common interests of both countries. PwC | Belt and Road Initiative - A Strategic Pathway | 16
SECTION TWO Building a strategic pathway PwC | Belt and Road Initiative - A Strategic Pathway | 17
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA OPTIONS CONSIDERED AND PROCESS • The NZCC in collaboration with project sponsors have commissioned this report to contribute ideas that can be further explored during the 18 month time frame established in the MoA. The NZCC’s decision to focus on connectivity initiatives allows this report to explore opportunities other than infrastructure through which New Zealand as a small trading nation can engage in the BRI. This does not mean that infrastructure investment may not eventually be a feature of New Zealand’s participation in BRI. Strengthening New Zealand’s overall engagement with BRI should be beneficial to any infrastructure related developments. • To capture a range of options through a diverge and converge process, a wide variety of initiatives that New Zealand could pursue were collected and narrowed down by assessing them against the six criteria described below. DIVERGE CONVERGE Tourism Food security Trade facilitation Trade facilitation Supply chain Energy exports New Zealand as a conduit to South America Natural resources Cultural/sports Partnership in the and food Pacific Creative Sector Education Virtual water Innovation THE INITIATIVES SELECTED FOR CONSIDERATION WERE EVALUATED AGAINST THE FOLLOWING SIX CRITERIA Aligned to NZ’s comparative advantage Potential for traction NZ must have a top quartile position in the with China under BRI potential area of cooperation. Engagement and interest from China in implementing any of the proposed initiatives will be critical to success. Value to NZ Inc. Benefits vs costs Each initiative must deliver benefit to NZ as Each initiative must have a value a whole. This is more likely to be achieved proposition that has the potential to through multilateral mechanisms. deliver net benefits. Ease of implementation Reputational risk The initiative must be feasibly NZ’s position as an internationally trusted implementable with the resources and dependable partner must not be available. compromised. PwC | Belt and Road Initiative - A Strategic Pathway | 18
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA NEW ZEALAND ENGAGEMENT LEVELS The outcome of the process is eight initiatives under four categories. Each initiative has been assessed against the specified criteria and presents a viable opportunity for New Zealand to engage with the BRI. This report explores different levels of engagement for each initiative to give options over the breadth and depth of potential engagement. Trade Facilitation Collaborating to Enhancing connectivity help optimise Biosecurity between China and South trade facilitation America to facilitate the under the BRI. New Zealand as a movement of people and Custom clearance goods. conduit to South America Hubbing Utilising our innovative Creative Sector capability through Innovation Creative Utilising New Zealand’s research collaboration Research properties world leading creative and commercialisation collaboration and capabilities to develop links with China and commercialisation BRI Interactive creative properties that across BRI. simulations can enhance people to Epcot type people links and cultural location based engagement. experience APPLICATION OF PROPOSED INITIATIVES TO THE FIVE BRI COOPERATION PRIORITIES SET OUT BY CHINA’S NATIONAL DEVELOPMENT AND REFORM COMMISSION The proposed initiatives are summarise above and the BRI cooperation priorities are described in full on page 4. POLICY COORDINATION PEOPLE-TO-PEOPLE BONDS FACILITIES CONNECTIVITY FINANCIAL INTEGRATION UNIMPEDED TRADE PwC | Belt and Road Initiative - A Strategic Pathway | 19
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA 1.1 TRADE FACILITATION BIOSECURITY DESCRIPTION Opportunity to apply New Zealand’s world class • The BRI will result in both an expansion of existing trade biosecurity expertise to enhance BRI trading flows and new routes for the movement of people and partners’ biosecurity, plant protection and food goods. New Zealand has a world leading reputation in safety. both biosecurity processes and the associated scientific knowledge. • New Zealand can build on the collaboration agreements and projects already in place to partner with China to NEW ZEALAND’S CAPABILITY enhance biosecurity efforts. • New Zealand has a world class biosecurity regime. • An example of an existing project that could be extended to China’s BRI is the Better Border Biosecurity Sentinel • New Zealand has a number of strong scientific links with Plant Project. Its aim is to forecast and future proof New China. An example of this was the recent invitation to Zealand native and agricultural ecosystems against plant New Zealand to host the 4th International Congress on pests and diseases. This involves growing either Biological Invasions in 2021. All previous events have expatriate native trees or crops of value to New Zealand been held in China and will cover applied research around in overseas countries.41 marine, aquatic, animal, plant and insects.42 • The nature of biosecurity risks means that the greatest • As a result of Premier Li’s visit to New Zealand in March benefit can be drawn from expanding collaboration 2017, a number of Agriculture related initiatives were across multiple BRI countries. announced.43 • Multilateral aspects could include trilateral collaboration 1. New Zealand and China will establish a new focused on biosecurity and biological invasion. Agriculture Growth Partnership. 2. Establish a Joint International Research Centre for Food Science between AgResearch, COFCO Nutrition and China Agricultural University. 3. Memorandum of Understanding signed between AgResearch and the Institute of Plant Protection- China Academy of Agricultural Sciences (IPP-CAAS) focusing on biosecurity and plant protection research cooperation. PwC | Belt and Road Initiative - A Strategic Pathway | 20
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA 1.1 TRADE FACILITATION BIOSECURITY (continued) Potential for Existing Levels of engagement traction with Value to NZ Benefits vs Ease of Reputational arrangements China under Inc. costs implementation risk with China BRI I. Working with Chinese counterparts to develop a co-ordinated inter- department biosecurity themed research programme as found with Easy Low Better Border Biosecurity. II. Set up a joint laboratory (either virtual or in designated facilities in each respective country) for example with AgResearch, Plant and Food Research and Easy Low China’s Institute of Plant Projection (IPP) focused on plant / animal protection and biosecurity. III. Establish an enduring framework to identify and implement joint research projects with Chinese Med Med counterparts working in the field of plant protection and biosecurity which could be extended to include multiple BRI countries. AN EXAMPLE OF THE STRONG INDIRECT AMPLIFICATION RESEARCH LINKS BETWEEN NEW An example of another potential Innovation ZEALAND AND CHINA: project: • New methods to approach • China’s IPP led a delegation visit to Tourism, biosecurity and pathways biosecurity may arise out of joint New Zealand in October 2017. This into NZ: identifying risks and research efforts. was headed by the IPP Director mitigation strategies. This will General Prof. Zhou Xueping. allow better understanding of the cultural aspects and motivations • The delegation visited AgResearch impacting biosecurity awareness research facilities as well as and compliance by Chinese received presentations by Plant and tourists.42 Food Research, Lincoln University Bio-Protection Center and Better Border Biosecurity.42 PwC | Belt and Road Initiative - A Strategic Pathway | 21
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA 1.2 TRADE FACILITATION CUSTOMS CLEARANCE DESCRIPTION Opportunity to apply New Zealand’s customs • To date, much of the focus for BRI has been on the expertise to ease movements of goods across opportunities to build physical infrastructure. The value the BRI. of that infrastructure is enhanced through maximising the efficient movement of goods. • New Zealand can work with China to help build capability NEW ZEALAND’S CAPABILITY in other BRI countries to enhance customs clearance protocols along the BRI. • New Zealand has become a very efficient trading partner • This concept could encompass Joint Electric Verification with China. While opportunities for improvement will systems, Mutual Recognition Arrangements, and could always remain, there are efficient protocols for exchange enhance supply chain integrity. of information and certification of origin. • Timely customs clearance is an important aspect for • New Zealand is a well regarded international counterpart. efficient trade. • NZ Customs has a positive relationship with GACC. • A large number of countries are engaged in the BRI and increased access to these BRI economies could result in resource constraints on General Administration of China Customs (GACC). PwC | Belt and Road Initiative - A Strategic Pathway | 22
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA 1.2 TRADE FACILITATION CUSTOMS CLEARANCE (continued) Potential for Existing traction with Value to NZ Benefits vs Ease of Reputational Levels of engagement arrangements China under Inc. costs implementation risk with China BRI I. A one-off trilateral project with a BRI country utilising New Zealand’s experience of how to work efficiently with China to help enhance that country’s Easy Low customs clearance with China. II. Structured bilateral development and Med delivery across multiple jurisdictions. Low III. Establish a permanent capacity building centre Hard of excellence with Med participation open to all BRI countries. CUSTOMS ARRANGEMENTS CURRENTLY INDIRECT AMPLIFICATION IN PLACE Implementation consideration: Trade • As at 13 November 2017, China has Significant resources would need • This would have a secondary effect Authorised Economic Operator to be applied to create the capacity in enhancing New Zealand’s trading Mutual Recognition Agreements building centre for level three. relationship with the engaged BRI with 34 countries and regions countries. including the EU, New Zealand and Singapore.38 • Multilateral engagement would provide a platform for the • China has 14 free trade agreements standardisation of best practices in place including the China-ASEAN increasing harmonisation across FTA and the Mainland and Hong jurisdictions. Kong Closer Economic and Partnership Arrangement.44 • China has more FTAs currently in negotiation. PwC | Belt and Road Initiative - A Strategic Pathway | 23
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA 1.3 TRADE FACILITATION HUBBING DESCRIPTION • Hubs are becoming key components of international Opportunity to develop hubs within the BRI supply chains with benefits including speed to market, network to enhance supply chain connectivity reduced working capital and efficiency in transport. and efficiency. • Establishing hubs in China or elsewhere utilising Belt and Road infrastructure will enhance the value of BRI assets. • The efficiency and attractiveness of hubs could be enhanced through pre-clearance of product that is NEW ZEALAND’S CAPABILITY exported to a specific hub. • New Zealand has experience working across jurisdictions • The attractiveness of specific hub locations is driven by on hub locations and alternative hub structures. the efficient transportation options to other major markets either in-country or in neighbouring countries. • Fonterra has established a MPI certified hub in Singapore to allow ease of access into South East Asia. PwC | Belt and Road Initiative - A Strategic Pathway | 24
SECTION ONE SECTION TWO Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion & Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps Projects Levels to SA 1.3 TRADE FACILITATION HUBBING (continued) Potential for Existing Levels of engagement traction with Value to NZ Benefits vs Ease of Reputational arrangements China under Inc. costs implementation risk with China BRI I. Explore opportunities for hub locations in the context of future changes in trade flows Easy Low arising from BRI projects. II. Expand Level I to include the impact of pre-clearance of inbound Med products. Low III. Expand Level II to include the impact of Med "non-manipulation" Med agreements with other jurisdictions. EXISTING AGREEMENTS WITH CHINA INDIRECT AMPLIFICATION Supply chain benefits: • No New Zealand related hub has Trade been established in China however An in market hub could extend to • This would have a secondary effect preclearance for fresh milk exists. accessing Europe using an in enhancing New Zealand’s trading alternative method of transport relationship with the engaged BRI e.g. pre-cleared products could be countries. It would also open new shipped to a hub in China and then supply chain routes. utilise a non-manipulation agreement and efficient land transport options to optimise access to other markets. PwC | Belt and Road Initiative - A Strategic Pathway | 25
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